The Conference Board’s Composite Index of Leading Economic Indicators increased 0.4% (4.4% y/y) in August following an unrevised 0.3% July gain. Three-month growth remained firm at 5.5% (AR).

Performance amongst the components of the leading indicator series was mostly positive. Building permits, a steeper interest rate yield curve, consumer expectations for business/economic condition, the ISM new orders and the average workweek series each contributed positively to the overall index rise. Stock prices and factory orders for both consumer and capital goods had neutral effects. Initial claims for unemployment insurance had a negative effect on the index.

The Index of Coincident Economic Indicators held steady m/m, up 1.9% y/y, following a 0.3% rise. Gains in payroll employment, personal income less transfer payments and business sales were countered by a decline in industrial production. Three-month growth in the index slowed to 1.4% (AR), its weakest since March.

I am a bit surprised that the LEI keeps rising amid generally tepid economic data in recent weeks. Especially since the ECRI Weekly Leading Index is clearly weak and the Surprise Index remains negative as the Ed Yardeni charts show.

So, I took a look at some of the series that are pushing the Conference Board’s LEI up:

Building permits were up last month but not in the past year.

The yield curve is not really steepening.

The U of M Consumer Sentiment Index is rather weakish.

Actual New Orders have flattened out. Markit’s Manufacturing PMI Index, which I consider more accurate and less volatile than the ISM, has been rather uninspiring lately: “new orders rose at a pace only slightly weaker than July. (…) new export sales were broadly unchanged in August, following a fractional contraction in July.”

The average week rose a little last month after being in a very narrow range for 2 years. All of the rise came from overtime hours which can be volatile. And it’s not as if the work week could rise much more from its current 42.1 hours. It reached 42.2 hours 3 months during 2014, a number never exceeded since WWII!

These series have all in common that their most recent data were up but within declining or flattening trends.

In any case, here’s the still positive picture as Doug Short illustrates it:

DID HE REALLY SAY THAT?

Kim Jong Un of North Korea, who is obviously a madman who doesn’t mind starving or killing his people, will be tested like never before!

Why would you want to test an obvious madman given the kind of weapons he got?

The Conference Board’s Composite Index of Leading Economic Indicators increased 0.3% m/m (3.9% y/y) in July following an unrevised 0.6% m/m rise in June. A 0.3% monthly rise had been expected in the Action Economics Forecast Survey. Three-month growth increased to 5.1% (AR) versus 4.8% in June, pointing to improvements in economic activity in the second half of this year.

Eight of the ten component series contributed positively to the leading index in July. Building permits subtracted meaningfully while the average workweek was neutral. The remaining made positive contributions: weekly unemployment claims, new orders for consumer goods, nondefense capital goods orders, ISM new orders index, equity prices, the leading credit index, the interest rate spread, and consumer expectations.

The Index of Coincident Economic Indicators also rose 0.3% m/m (1.9% y/y) in July following a downwardly revised 0.1% m/m gain in June. The July rise strengthened this index’s three-month growth to 2.5% (AR), its best since December 2016. Each of the component series contributed positively to the latest increase, including payroll employment, real personal income less transfers, industrial production, and manufacturing and trade sales.

U.S. manufacturing production has fallen two of the last three months, including a 0.1% dip in July, the Federal Reserve said Thursday. The decline partly offset big gains in mining and utility production, which pushed overall U.S. industrial output—a major indicator of the economy’s health—to rise 0.2% last month.

The biggest factor behind the factory sector’s latest softness has been a sharp drop in manufacturing of new vehicles. Auto output has fallen three consecutive months and 4% over the year. (…)

Auto makers built 1.9% fewer vehicles during the first seven months of 2017 compared with the same period a year ago, according to WardsAuto.com, an automotive data and information provider. Industry output sharply declined in July as unsold inventory levels remain near record highs. (…)

Utes and mining (O&G) are the only bright spots. Everything having to do with consumers and biz are flat at best. (Table from Haver Analytics)

The all-items consumer-price index in July rose 1.2% from a year earlier, Statistics Canada said Friday, following a 1% advance in the previous month.

On a seasonally adjusted basis, Canada’s CPI rose 0.2% in July from the previous month.

Meanwhile, the average annual rate of core inflation, based on three gauges used by the Bank of Canada, rose 1.5% in July, versus a 1.4% gain in the previous month. The three measures of core inflation—which aim to get a better read on underlying price pressures in the economy—ranged from 1.3% to 1.7%. Two of those measures accelerated from the previous month.

(…) Prices in the multitude of medium-size cities in China’s vast interior, which account for as much as 70% of the country’s housing market by floor space, rose at a slower pace for the second month in a row. (…)

The deceleration in growth, from a rise of 0.9% on the month in June to just 0.6% in July, is relatively minor. (…)

The biggest bullish factor for Chinese construction remains intact: Massive housing inventories, which depressed construction growth for years, are still falling. Vacant, unsold housing floor space in China fell 10 million square meters in July to the lowest level since February 2014, according to data released earlier in the month. Vacant floor space is down 20% on the year. (…)

The Conference Board’s Composite Index of Leading Economic Indicators increased 0.6% (4.0% y/y) during June following a 0.2% May gain, revised from 0.3%. It was the strongest increase since January. Three-month growth improved to 4.5% (AR) versus 3.5% in May.

Most of the component series contributed positively to the leading index last month, including an increased number of building permits, a higher ISM new orders index, a steeper interest rate yield curve, the leading credit index, improved consumer expectations for business & economic conditions and higher stock prices. More initial unemployment insurance claims contributed negatively and the workweek was stable.

The Index of Coincident Economic Indicators rose 0.2% last month (2.0% y/y) after an upwardly revised 0.3% May gain. The latest rise strengthened three-month growth to 2.5% (AR), its best since December.(…)

The Index of Lagging Economic Indicators also increased 0.2% during June following an unrevised 0.1% May uptick. Three-month growth held steady at 2.3%. A higher prime rate and a higher consumer installment credit/personal income ratio were offset last month by slower growth in the services CPI and fewer commercial & industrial loans outstanding.

The ratio of coincident-to-lagging indicators also is a leading indicator of economic activity. It measures excesses in the economy relative to its ongoing performance. This ratio has been fairly steady since early last year.

No signs of recession just yet as these Advisor Perspectives charts show. Looks more like a reacceleration than anything else.

AND NOW, THE MIDDLE MARKET REPORT

RSM US LLP (RSM) and the U.S. Chamber of Commerce have joined forces to present the RSM US Middle Market Business Index (MMBI)—a first-of-its-kind middle market economic index developed by RSM in collaboration with Moody’s Analytics. We publish the MMBI on a quarterly basis as a means to give voice to the middle market and raise awareness of this crucial, yet underrepresented segment of the economy.

The survey panel, the Middle Market Leadership Council, consists of 700 middle market executives, and is designed to accurately reflect conditions in the middle market. The data for each quarter are weighted to ensure that they correspond to the U.S. Census Bureau data on the basis of industry representation.

Middle market executives are asked a total of 20 questions patterned after those in other qualitative business surveys, such as those from the Institute of Supply Management and National Federation of Independent Businesses.

The RSM US Middle Market Business Index posted a high of 132.1 in the second quarter. This is the second consecutive record-high reading for the index and reflects underlying improvement in economic conditions during the past year, as well as strong corporate earnings and respondent expectations for significant tax reform and regulatory relief this year.

Based on our quarterly RSM US Middle Market Business Index, the labor market is far tighter than topline data implies. Middle market executives noted in a series of special questions that they intend to use above-market compensation, flexible schedules and opportunities for increased training with respect to recruitment and retaining workers. (…)

More importantly, 62 percent indicated they would turn to a greater integration of information technology to boost overall output per worker from their current workforce. (…)

The European Central Bank left interest rates and its quantitative easing programme unchanged at its July meeting, and also made no change to its forward guidance. (…)

As previous bouts of policy tightening in 2008 and 2011 were swiftly reversed, as the timing proved inappropriate, it’s no surprise that the ECB is in no rush to make the same mistake again.

With PMI survey gauges of both business activity and inflationary pressures falling in June, albeit still at historically high levels, the dovish stance becomes even more understandable. The softer survey data perhaps also helps explain why the ECB reiterated that it could increase its €60 billion per month asset purchases if the economy worsens. (…)

OIL

The chart below shows the “fiscal breakeven” for major oil exporters. Below these oil price levels, the governments of these countries run a deficit. This breakeven point has been moving lower for many exporters as their governments do some belt tightening. (The Daily Shot)

(…) There could be an everything bubble lifting the entire market, but stock performance doesn’t suggest over-enthusiastic investors have inflated a tech bubble or even a broader bubble of disrupters. Yet.

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